Steps of the Foreclosure Process

Foreclosure Terminology

Do I Really Need a Lawyer?

Should I Do a Short Sale?

Should I Do a Deed in Lieu?

What are the Tax Consequences of Deed in Lieu or Short Sale?

Foreclosure Defense Terminology/Foreclosure Definitions

Complaint- The complain for foreclosure lays out the claims of the foreclosure suit. It will describe:

  • the mortgage
  • the promissory note
  • the property to be foreclosed
  • the default
  • the amount due, and
  • the defendants, along with their interest in the property.

The complaint will also state the relief the lender seeks (money and/or possession of the property) in the judgment from the court.   For example, the complaint will ask for the right to sell the property and apply the proceeds of the sale to the mortgage debt.  The complaint may also ask for a deficiency judgment if the proceeds at the foreclosure sale do not fully cover the total debt amount.

Dual Tracking– Occurs when a mortgage servicer continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification. In the past, dual tracking was common, however this was reduced due to new rules issued by the Consumer Financial Protection Bureau (CFPB) as well as various state laws and the National Mortgage Settlement (NMS).

The CFPB rules, which became effective January 10, 2014, strictly limit the ability of mortgage servicers to foreclose on a borrower while also negotiating a loan modification.

Under the new rules, 12 C.F.R. 1024.41, a mortgage servicer cannot initiate a foreclosure until 120 days after you fall behind in payments (which provides a reasonable amount of time to submit a loan modification application). Also, the servicer cannot start the foreclosure process if a loss mitigation application is pending.

If you submit a complete loss mitigation application to your mortgage servicer after the foreclosure has started, but more than 37 days before a foreclosure sale, the servicer must stop the foreclosure process or any foreclosure sale until:

  • the servicer informs you that you are not eligible for any loss mitigation option (and any appeal you make has been exhausted)
  • you reject the workout option that the servicer offers to you, or
  • you accept a workout, but fail to comply with the terms of the deal (such as not making payments during a trial modification).

Lis Pendens–  is latin for “suit pending.” The notice of lis pendens is recorded in the county records and then a copy is served to the borrower, along with the complaint and summons.  The purpose of the notice of lis pendens is to inform the public that a lawsuit involving the property is pending.  The Lis Pendens will typically include the legal description of the property as well as case caption and signed by the law firm representing the bank.

MERS– Mortgage Electronic Registration System, Inc. (MERS) is a company that was created by the mortgage banking industry.  MERS maintains a database that tracks mortgages for its members as they are transferred from bank to bank. By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank to another.   MERS has caused numerous issues in court when lenders are forced to prove that they owned or held the note at the time of the filing of the lawsuit.   Very few, if any, lawsuits in Florida have MERS as the Plaintiff anymore.

Payoff– This is similar to a reinstatement, but consists of paying off the entire mortgage balance.  The payoff quote will show the exact amount needed to be paid, as well as the date that the amount is good through (before the next payment must be added on).

Reinstatement– This consists of paying all amounts due to the date of the reinstatement, including missed payments, interest, attorney’s fees, property taxes, insurance, fees, etc.  The reinstatement quote from the bank lawyers will show the exact amount needed to be paid, as well as the due date (typically within 30 days of the quote).  The quote will include:

  • all of the back and current payments now due
  • any applicable late fees
  • the cost of any property inspections
  • the attorney/trustee fees and costs for the foreclosure procedure
  • other expenses incurred to preserve and protect the lender’s interest in the property, and
  • often a recording fee for the notice of cancellation of the sale.

Securitization-  When you buy a home, the lender has you sign a note for money to make the purchase in exchange for your promise to replay the loan (plus interest and fees).  Such a note is secured by a mortgage, or lien, on the property saying that if you fail to make the paymnets, the bank can repossess it’s collateral, the house.   In securitization, multiple notes and mortgages are pooled, or grouped together as a package, and then sold on the market as a security (called “mortgage-backed securities”), often to a trust.

The main parties in securitization you will hear about or see are:

  • Originators. The originators are the parties that initially create the assets that will be securitized. In the mortgage industry, the original lender (typically a bank or mortgage lender) is considered an originator.
  • Investors. Investors purchase shares or certificates in a mortgage loan pool and are entitled to receive payments from the trust that holds the pool.
  • Trustee. The trustee oversees the trust and protects the investors’ interests.
  • Loan servicer. The servicer manages the loans that make up the pool.

The Pooling and Servicing Agreement (PSA) is the contract that governs the relationship between the various parties in the securitization process and controls what can and cannot be done with the trust.  The PSA will state: the exact steps needed to create a trust, how bundled mortgage loans are transferred into the trust, how securities are issued, and the duties, rights, and obligations of each party.
Often, the servicer is entitled to retain the late charges, NSF fees, reconveyance fees, assumption fees, or other fees that it collects.  The PSA will also carefully describe the loan servicer’s responsibilities pertaining to collecting payments, handling loss mitigation (including the authority to modify loans), and foreclosure.

Summons– In a foreclosure lawsuit, a summons is issued for each defendant who is named in the foreclosure lawsuit. Typical defendants in a foreclosure lawsuit are: homeowners (borrowers), lienholders, judgment holders, and tenants/occupants (if any).

The summons informs each defendant that he/she must file a response to contest the allegations of the complaint, and states how many days the defendant has to respond with a response (20 in Florida). If you fail to respond within this time frame, a default will be issued against you and your rights to defend the lawsuit may be extinguished, no matter how good of a defense you may have.